For many decades, the private debt market in the U.S. meant one thing: U.S. private placements.
Private placements are the placement of debt or equity securities by a company (issuer) to an investor or group of institutional investors in a private transaction, as contrasted to the better-known and highly regulated public market.U.S. private placements refer to middle-market or occasionally larger companies raising long-term debt from one or more U.S. life insurance companies including Prudential, MetLife, New York Life, TIAA-CREF, Northwestern Mutual, and others.
In most instances, the debt – referred to as “notes” – is unrated by the large rating agencies, but it is rated privately by the National Association of Insurance Commisioners (“NAIC”). NAIC ratings tend to be much more lenient to middle-market companies than the public rating agencies like Moody’s and Standard & Poor’s, which often penalize companies simply because of their size. U.S. private placements normally have maturities of seven to 15 years — beyond the length of time that banks are willing to lend — and they almost always have fixed-rate coupons. Each transaction is bespoke, meaning that the pricing and terms of each U.S. private placement are negotiated privately between the issuer and the participating group of life insurance company investors.
Some companies issuing U.S. private placements are publicly listed, but more often than not, they are either private U.S. companies or foreign listed companies that do not wish to comply with the stringent SEC-reporting requirements necessary to issue a public bond in the U.S. market. From the perspective of U.S. life insurance companies, private placements are a way to invest in high quality, long-duration assets to match their long-duration liabilities. These investments are almost always on a “buy-and-hold to maturity” basis. The traditional U.S. private placements market is tailor-made for structured or secured transactions, too, like infrastructure/project financings and asset-based securities, with the latter often involving esoteric asset classes. Annual new issue volumes in the U.S. private placements market are normally between $80 billion to $100 billion each year3.
